•“持續權益所有人代指在交易完成前是Smith Douglas Holdings LLC有限責任公司持股人的LLC權益所有者，在交易完成後也是LLC權益和我們的B類普通股持有人，包括創始人基金和GSb Holdings，他們可以根據各自的期權，全數或部分地不時將其LLC權益（如適用）選擇性地與我們選擇的（僅由我們的獨立董事（根據交易所規則的含義）決定，他們為無利害關係方）現金交換或作為《第三部分，項目13。某些關係和相關交易》和《董事獨立性- Smith Douglas LLC協議》所述的我們A類普通股的新發行股份 第III部分第13項。某些關係和相關交易和董事獨立性- Smith Douglas LLC協議 的年度報告(Form 10-k)中描述，截至2023年12月31日，我們的“年度報告”。與交換LLC權益相關，相應數量的B類普通股將立即自動轉讓予Smith Douglas Homes corp.，並無償取消。
•“受控批「受控批」指在選擇權合約設定的相關時間範圍內，已擁有或持有採購權的批次。
•“德文街房屋“” 指的是德文街房屋有限合夥公司
•“Devon Street Homes收購”指的是2023年7月31日達成的交易，根據該交易我們收購了Devon Street Homes的幾乎所有資產。根據資產購買協議（“APA”），購買價格等於Devon Street Homes的淨資產，不含現金，無負債，再加上一筆同意的保險金，主要由房地產存貨組成，需根據購買價格進行調整。我們從手頭現金，我們之前信貸工具的7200萬抽取款項，一張面額500萬的三年期本票支付給賣方，以及約300萬的對賣方的有條件賠償款項中，主要來資助購買價格8390萬美元。有條件的賠償款項將在實現一定毛利率目標後支付給賣方。 我們2023年的未經審核的基本報表截至于 2024年9月30日，包括Devon Street Homes的營運結果，可能與上一期不直接可比。
•“交易所「”」指的是紐約證券交易所。
•“創始人基金“” 指的是Bradbury家族信託第II A U/A/D於2015年12月29日成立，我們的創始人兼執行主席Tom Bradbury擔任共同受託人。
•“有限責任公司股權「」指的是Smith Douglas Holdings LLC的會員單位，包括我們從首次公開募股的淨收益中購買的那些。
•“再融資「”」指的是（i）與我們的首次公開發行同時，Smith Douglas Holdings LLC及我們的某些全資子公司進入修訂和重新簽署的循環信貸設施（“修訂信貸設施”），取代了與偉華銀行國家協會作為該等貸款人代理人（“貸款人”）簽署，日期為2021年10月28日，並自該日期起修訂的未擔保循環信貸設施（“先前信貸設施”）成合約，修訂簽署的“修訂信貸設施”），及（ii）使用首次公開發行的淨收益的一部分偿还我們先前信貸設施下的8400萬美元未偿还款項（“償還債務”）。
•“第704(c)條款分配”指的是根據1986年修訂版《內部稅務法典》第704(c)條款在Smith Douglas Holdings LLC持有的存貨財產中的收入和收益可能存在的不成比例分配，源自我們從Smith Douglas Holdings LLC收購LLC權益包括與交易相關的情況。
•“我們,” “我們,” “我們的合約公司,” “Smith Douglas及類似的提及是指：（i）交易完成後，包括首次公開發行（IPO）後的Smith Douglas Homes公司及其直接和間接子公司，包括Smith Douglas Holdings有限責任公司；（ii）在交易完成前，包括IPO前的Smith Douglas Holdings有限責任公司。
交易紀錄
Smith Douglas Homes公司是一家成立於2023年6月20日的特拉華州公司。Smith Douglas Homes公司是一家控股公司，也是Smith Douglas Holdings LLC的唯一管理成員，其主要資產是LLC股權。在我們的IPO和交易之前，所有的業務運營都是通過Smith Douglas Holdings LLC進行的，而持續股權擁有者是Smith Douglas Holdings LLC的唯一成員。為了完成IPO，我們進行了某些組織交易，下面將進一步描述，以重組我們的公司結構：
•我們修訂了Smith Douglas LLC協議，旨在，除了其他事宜外，(i) 將Smith Douglas Holdings LLC中所有現有的所有權益重新資本化為44,871,794 LLC利益（在考慮IPO所得的使用之前，如下所述），(ii) 任命Smith Douglas Homes corp.為Smith Douglas Holdings LLC的唯一管理成員，該任命將在其獲得與IPO相關的LLC利益後生效，以及(iii) 向持續的股權所有人提供某些贖回權利；
•我們修改並重訂了Smith Douglas Homes Corp.的公司章程，其中包括：(i)規定A類普通股，每股A類普通股都賦予持有人在一般股東會上每股一票的表決權；(ii)規定B類普通股，在日落日期之前，每股B類普通股都賦予持有人在一般股東會上每股十票的表決權，而日落日期發生後，每股B類普通股將賦予持有人在一般股東會上每股一票的表決權；(iii)規定B類普通股只能由持續持股股東及其合法轉讓人持有；以及(iv)預先股，可由董事會在不需股東批准的情況下以一個或多個系列發行。
•Smith Douglas Holdings LLC利用出售LLC股權給Smith Douglas Homes Corp.的淨收益，(i) 用於還清償前信用設施下未償還之約8400萬美元的借款，作為再融資的一部分， (ii) 以260萬美元總計贖回Smith Douglas Holdings LLC的所有未贖回的C類單位和D類單位， (iii) 用於償還向某些關聯方的90萬美元應付票據，以及 (iv) 用於根據我們在本季度報告第10-Q表格中闡明的一般公司目的。 第I部分，項目2。管理層對財務狀況和業務結果的討論和分析-流動性和資本資源 在這份第10-Q季度報告書中， 第III部分，項目13。某些關係和相關交易，以及董事獨立性 在我們的年度報告中；
•Smith Douglas Homes corp.與部分持續股權擁有人簽訂了（i）登記權協議，以及（ii）與Smith Douglas Holdings LLC和持續股權擁有人簽訂的稅收可收回協議。有關登記權協議和稅收可收回協議條款的描述，請參見 我們年度報告的第III部分第13條「特定關係和相關交易，以及董事獨立性」 。
跟進交易：
•Smith Douglas Homes公司是一家控股公司，其主要資產包括直接從Smith Douglas Holdings LLC和每位持續股權所有者處收購的LLC股權；
•Smith Douglas Homes公司是Smith Douglas Holdings有限責任公司的唯一管理成員，並控制著Smith Douglas Holdings有限責任公司的業務和事務；
•Smith Douglas Homes公司直接或間接擁有8,846,154個LLC利益，佔有Smith Douglas Holdings LLC大約17.3％的經濟利益；
•持續股權持有人擁有（i）42,435,897個LLC股份，佔Smith Douglas Holdings LLC經濟利益的約82.7%，以及（ii）42,435,897股Smith Douglas Homes corp.的b類普通股。
我們在首次公開發行後的企業結構通常被稱為傘型合夥-C公司（“Up-C”）結構，當合夥關係和有限責任公司進行業務首次公開發行時，這種結構經常被使用。Up-C結構允許持續股權擁有者保留他們在史密斯道格拉斯控股有限責任公司的股權所有權，並繼續實現與擁有被視為合夥關係或“流通”實體以供美國聯邦所得稅目的的利益相關的稅收優惠。相比之下，我們IPO後的投資者將持有史密斯道格拉斯房地產公司的股權，這是一家美國聯邦所得稅目的的國內公司，形式為A類普通股的股份。與該結構相關的持續股權擁有者的一項稅收優惠是，分配給持續股權擁有者的史密斯道格拉斯控股有限責任公司的未來應稅收入將以流通方式徵稅，因此將不受實體層次的企業稅影響。此外，由於持續股權擁有者可以通過史密斯道格拉斯控股有限責任公司贖回他們的LLC權益（或根據我們的選擇，由史密斯道格拉斯房地產公司直接交換）以每一比一的方式換發我們的A類普通股（經常性調整，包括進行拆股並股、送轉和重分類），或者根據我們的選擇，換發現金，因此Up-C結構還為持續股權擁有者提供了未公開交易的有限責任公司股東通常無法獲得的潛在流動性。在任何此類LLC權益贖回或交換相關活動中，相應數量的由相關的持續股權擁有者持有的B類普通股將自動轉讓給史密斯道格拉斯房地產公司而無需支付任何代價並將被取消。持續股權擁有者和史密斯道格拉斯房地產公司還預計將從造成的由持續股權擁有者的LLC權益換發A類普通股或現金所引起的部分現金稅收節省以及由“稅收可收回協議”所涉及的其他稅收益處對Up-C結構受益。 第三部分，項目13。某些關係、相關交易和董事獨立性—稅款可收回協議。見 第一部分，項目1A。風險因素—與我們組織結構相關的風險 我們年度報告的。一般而言，持續股權擁有人預計將根據稅款可收回協議收到某些稅務優惠金額的85%的支付，如下所述，Smith Douglas Homes Corp. 預計將以現金稅收節省的形式受益，其金額等於某些稅務優惠金額的15%，如下所述。我們向持續股權擁有人根據稅款可收回協議支付的任何款項將減少因此稅款儲蓄而產生的現金。我們預計此類付款將是可觀的。
•adjusted net income, defined as net income adjusted for the tax impact using a 24.5% federal and state blended tax rate (assuming 100% public ownership to adjust for the impact of taxes on earnings attributable to Smith Douglas Holdings LLC as if Smith Douglas Holdings LLC was a subchapter C corporation in the periods presented);
•EBITDA, defined as net income before (i) interest income, (ii) capitalized interest charged to cost of home closings, (iii) interest expense, (iv) income tax expense, and (v) depreciation;
•EBITDA margin, defined as EBITDA as a percentage of home closing revenue;
•our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners;
•the significant influence the Continuing Equity Owners have over us, including control over decisions that require the approval of stockholders; and
•the factors set forth under Part I, Item 1A. Risk Factors of our Annual Report.
Because forward‑looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward‑looking statements as predictions of future events. The events and circumstances reflected in our forward‑looking statements may not be achieved or occur and actual results could differ
materially from those projected in the forward‑looking statements. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward‑looking statements by these cautionary statements.
These forward‑looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward‑looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
關於首次公開發行（IPO），Smith Douglas Holdings LLC修訂並重新制訂其現有有限責任公司協議，其中包括（i）將Smith Douglas Holdings LLC中的所有現有所有權利益重估為
44,871,794 有限責任公司利益（在下文所述的IPO籌款使用發生前），（ii）在IPO時將Smith Douglas Homes Corp.任命為Smith Douglas Holdings LLC的唯一管理成員，並（iii）為Smith Douglas Holdings LLC中的有限責任公司利益所有者（不包括公司（持續權益擁有者）提供特定贖回權。
同時，史密斯道格拉斯住宅股份有限公司修訂並重新訂其註冊證明書，其中包括為 A 類普通股規定 (i)，而 A 類普通股的每股股份都讓其持有人權 一 一般向股東呈交的所有事項，每股投票；(ii) 對 B 類普通股票而言，每股 b 類普通股的股東均可享有權 十 一般向股東呈交的所有事項，每股每股票投票，直至當時尚未發行的 b 類普通股股份總數少於 10當時未發行 (日落日) A 類普通股及 B 類普通股的總股數的百分比，以及從日落日起及之後，每股 b 類普通股將授權其持有人 一 一般向股東呈交的所有事項，每股投票；(iii) 持續股權擁有者及其各自允許轉讓人持有的 B 類普通股股份只能持有人持有；及 (iv) 優先股票，由董事會在未經股東批准下以一或多個系列發行的優先股票。因此，史密斯道格拉斯住宅公司成為控股公司，也是史密斯道格拉斯控股有限公司的唯一管理成員，並控制史密斯道格拉斯控股有限公司的業務和事務。在實施如下所述的淨資金使用後，史密斯道格拉斯住宅股份有限公司發行 42,435,897 持續股權擁有者的 b 類普通股股份，相等於該持續股權擁有者持有的有限責任公司權益數目，以名義代價。
在首次公開募股之後，Smith Douglas Homes corp. 使用淨收益來：(i) 以每股價格相等於每股A類普通股的IPO價格減去包銷折扣的價格，從Smith Douglas Holdings LLC 直接購買新發行的LLC權益。 6,410,257 從Smith Douglas Holdings LLC以每股單位價格為每股相等於$的價格，約$百萬直接購買新發行的LLC權益。125.2 每股單位價格為每股相等於$IPO價格的A類普通股減去包銷折扣的價格，從持續股權擁有人按比例購買LLC權益，總價為$百萬。21.00 以每股單位價格為每股相等於$IPO價格的A類普通股減去包銷折扣的價格，從持續股權擁有人按比例購買LLC權益，總價為$百萬。 2,435,897 在首次公開募股之後，Smith Douglas Homes corp. 使用淨收益來：(i) 以每股價格相等於每股A類普通股的IPO價格減去包銷折扣的價格，從Smith Douglas Holdings LLC 直接購買新發行的LLC權益。47.6 每股單位價格為每股相等於$IPO價格的A類普通股減去包銷折扣的價格，從持續股權擁有人按比例購買LLC權益，總價為$百萬。
附帶的未經審計的簡明合併基本報表包括Smith Douglas Homes corp。、Smith Douglas Holdings LLC和其全資子公司的賬目。Smith Douglas Holdings LLC被視為一個變量興趣實體，而Smith Douglas Homes Corp.是Smith Douglas Holdings LLC的主要受益人和唯一的管理成員，並具有決策權，其行動對實體的績效產生重大影響。基於此，公司合併Smith Douglas Holdings LLC，並報告代表由持續權益擁有人持有的Smith Douglas Holdings LLC的經濟權益的非控股權益。
Smith Douglas Homes corp.被視為一家C級子公司，需遵守聯邦和州稅法的規定。Smith Douglas Homes corp.唯一的實質資產是其對Smith Douglas Holdings LLC的所有權權益，後者是一家依美國聯邦和某些州地方所得稅目的徵稅的有限責任公司。Smith Douglas Holdings LLC的淨應徵所得和相關稅收抵免（如有）將通過至其成員，並包含在成員的稅務申報中。公司未將徵稅關於歸非主導股東的收益的所得稅負擔報告於其根據美國通用會計準則編製的未經審計的簡明合併基本報表中。
就IPO和相關交易而言，公司與Smith Douglas Holdings LLC和持續股權擁有者簽訂了一份TRA，根據該協議，Smith Douglas Homes corp.將支付給持續股權擁有者的款項為 85Smith Douglas Homes corp.實現（或在某些情況下被視為實現）相關於基礎稅基調整的稅收好處金額的%，當此類節省實現時。
在2023年12月31日以及期間，我們的退休金計劃資產的投資指南旨在將投資分配目標設置為%股票和%債券。 三個和九個月 結束於 期間 年9月30日, the Company incurred fees of $16,000 和$0.4 million, respectively, in the aggregate from certain entities affiliated by common ownership for use of facilities related to business development and vendor relations, which is included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income. During the three and nine 結束的 月份 2023年9月30日，均未發行和流通公司支付了 使用這些設施的費用。 零 分別是$數量和$數量。0.4 百萬美元的設施使用費。公司支付了使用這些設施的費用，金額為 $0.1 百萬和 $0.4 百萬元在中國現金及等價物 九 結束於這些月份的 分別為2024年和2023年的9月30日. 沒有 在結束於這些月份時支付了使用這些設施的費用 三個月的普通股東可獲得的收入。 這些月份結束時支付了這些設施的使用費 2024年和2023年九月30日.
將歸屬於非控股權益的凈利潤加回到完全稀釋計算中的凈利潤已經調整了應賦稅的所得稅，假若所得已經獲得Smith Douglas Homes corp.，一個應徵稅的實體。在每股稀釋計算的加權平均流通股份假設所有未清盤的LLC Interests都已贖回，並且公司選擇在贖回時發行A類普通股股份，而非以現金結算。
以下討論與分析提供了我們認為與評估和理解我們營運業績和財務狀況相關的資訊。您應該閱讀本分析，並結合我們未經審計的簡明合併基本報表以及本季度報告書中其他地方出現的相關附註。除了歷史財務信息外，本討論與分析還包含與未來事件或我們未來財務績效相關的具前瞻性質的陳述，這些陳述基於我們目前的計劃、期望和涉及風險和不確定性的信念。這些陳述僅為預測，實際事件或結果可能有很大不同。在評估這些陳述時，您應仔細考慮年度報告中確定的各種因素，該報告已由本季度報告書更新，這些因素可能導致實際結果與任何前瞻性陳述中所表達或意味的結果有很大不同，包括在 Part I, Item 1A. Risk Factors 在我們年度報告中設定的那些。 我們年度報告的第 I 部分，第 1A項。風險因素 我們年度報告的一部分。
在IPO完成後，Smith Douglas Homes corp. 按照現行公司稅率就其可分派的 Smith Douglas Holdings LLC 的應稅收入而言，受美國聯邦、州和地方所得稅的約束。Smith Douglas Holdings LLC 作為一家有限責任公司運營，對所得稅目的被視為合夥關係。因此，它對聯邦或州所得稅無重大負債，因為可徵稅所得或損失將通過給其成員來進行。
Net income for the three months ended September 30, 2024 增加d by $390萬，或 11% from the same period of the prior year。 增加 主要原因是由於一個 增加 了 1660萬美元 房屋結業毛利潤的增加，部分抵消了增加 了 $1120萬 由於傭金和廣告費用增加，銷售、一般和行政成本增加。 $180萬 因為IPO和重組交易，截至2024年9月30日的三個月所產生的所得稅支出。
亞特蘭大： The 760萬美元增加 2024年9月30日結束的三個月的凈利潤，與前一年同期相比主要是因為房屋交易量增加了51％，部分抵銷了房屋成本平均增加了5％以及與增加的房屋交易有關的額外銷售、一般和管理成本。 51％的房屋成交量增加部分抵消了房屋成本平均增加5％以及伴隨增加房屋交易而產生的額外銷售、一般和管理成本，導致2024年9月30日結束的三個月的凈利潤下降。
調整後的凈利潤並不是根據GAAP所確定的凈利潤或凈利潤率的衡量標準。調整後的凈利潤是一個管理層和外部用戶（如行業分析師、投資者、貸款方和評級機構）使用的補充非GAAP基本報表。我们将调整后的净利润定义为经过税务影响调整的净利润，使用一个 24.5% 聯邦和州的綜合稅率（假設100%公共持有，以調整稅收對於與Smith Douglas Holdings LLC相關的收益的影響，假設Smith Douglas Holdings LLC在所呈現的期間內是一家子章節C公司）。
管理認為調整後的凈利潤是有用的，因為它讓管理能夠更有效地評估我們的營運表現，並與那些在所得稅前記錄所得稅費用的行業同行進行比較，而不是像Smith Douglas Holdings LLC的所得未在實體層面徵稅，因此並不反映所得稅費用的支出。 調整後的凈利潤不應被視為按照GAAP確定的凈利潤或任何其他指標的替代品或更有意義的資訊。我們計算的調整後的凈利潤可能與其他公司的調整後的凈利潤不可比較。 我們提供調整後的凈利潤，因為我們認為它提供有用的信息，關於我們與同行的可比性。
EBITDA、EBITDA利潤、調整後EBITDA和調整後EBITDA利潤並非根據GAAP確定的凈利潤或凈利潤利潤公布的指標。 EBITDA和調整後EBITDA是管理層和我們綜合財務報表的外部用戶，如行業分析師、投資者、貸款人和評級機構使用的附加非GAAP財務指標。 我們將EBITDA定義為( i ) 利息收入 、 ( ii ) 計入房屋結業費用的資本化利息 、 ( iii ) 利息支出 、 ( iv ) 所得稅開支 和 ( v ) 折舊前的凈利潤。 我們將EBITDA利潤定義為EBITDA佔房屋結業收入的百分比。 我們將調整後EBITDA定義為( i ) 利息收入 、 ( ii ) 計入房屋結業費用的資本化利息 、 ( iii ) 利息支出 、 ( iv ) 所得稅開支 、 ( v ) 折舊 、 ( vi ) 從成本售貨中包括的購入會計應用所引起的調整、( vii ) 從其他(收入)費用中包括的購入會計應用所引起的調整的凈利潤。 我們將調整後EBITDA利潤定義為調整後EBITDA佔房屋結業收入的百分比。
In the coming 12 months, our primary funding needs will revolve around the construction of homes, acquisition of finished lots under new and existing contracts, and operating expenses. Additionally, we may seek to use our capital to enter new markets through acquisition or greenfield startup if we believe such markets fit our business model. To address these short-term liquidity requirements, we anticipate relying on our existing cash and cash equivalents, as well as the net cash flows generated by our operations and availability under our Amended Credit Facility.
However, the opportunity to purchase substantially finished lots in desired locations is becoming increasingly more competitive. As a result, we remain open to seeking additional capital if necessary to enhance our liquidity position, further enable the acquisition of additional finished lot inventory in anticipation of improving market conditions and the competitive landscape and fortify our long-term capital structure.
Looking beyond the next 12 months, our primary funding needs will continue to center around home construction, finished lot acquisitions necessary to maintain a minimum four-year lot supply, growing active community count, growth into new and existing markets, and interest payments on our Amended Credit Facility. We expect our existing cash reserves, along with generated cash flows and availability under our Amended Credit Facility, will be sufficient to fund our ongoing operational activities and provide the necessary capital for future lot purchases and related growth strategies.
To the extent our current liquidity is insufficient to fund future activities, we may need to raise additional funds, such as refinancing or securing new secured or unsecured debt, common and preferred equity, disposing of certain assets to fund our operations, and/or other public or private sources of capital. If we raise additional funds by issuing equity securities, the ownership of our existing stockholders will be diluted. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all. See Part I, Item 1A. Risk Factors—General Risk Factors—Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adversely affect our ability to maximize our returns of our Annual Report.
On October 28, 2021, certain of our wholly-owned subsidiaries entered into a $175.0 million unsecured revolving credit facility with Wells Fargo Bank, National Association, as administrative agent for the Lenders, as amended on December 19, 2022, and as amended concurrently with the consummation of the IPO to the Amended Credit Facility. Smith Douglas Holdings LLC and Smith Douglas Homes Corp. were not parties to the Prior Credit Facility. Concurrently with the consummation of the IPO, we repaid the Prior Credit Facility.
Amended Credit Facility
Concurrently with the consummation of the IPO and pursuant to the Refinancing, Smith Douglas Holdings LLC and certain of its wholly-owned subsidiaries entered into the Amended Credit Facility, which amended and replaced the Prior Credit Facility, and conducted the Debt Repayment, pursuant to which we used a portion of the net proceeds from the IPO to repay the $84.0 million outstanding under our Prior Credit Facility. Smith Douglas Homes Corp. is not a party to the Amended Credit Facility.
The Amended Credit Facility, among other things, increases the aggregate principal amount of our revolving credit commitments to $250.0 million and extends the maturity date to January 16, 2027, provided that the borrowers may request a one-year extension of its maturity date. The Amended Credit Facility also includes a $100.0 million accordion feature, subject to additional commitments, and provides that up to $20.0 million may be used for letters of credit.
The borrowings and letters of credit outstanding under the Amended Credit Facility may not exceed the borrowing base as defined in the Amended Credit Facility. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by Smith Douglas Holdings LLC and certain of its wholly-owned subsidiaries.
Borrowings under the Amended Credit Facility bear interest, at the borrower’s option, at either a base rate or SOFR (which may be a daily simple rate or based on 1-, 3- or 6-month interest periods, in each case at the borrower’s option), plus an applicable margin. The applicable margin will range from 2.35% to 3.00% based on our leverage ratio as determined in accordance with a pricing grid defined in the Amended Credit Facility and is subject to a floor of 0.00%. Interest is payable in arrears on the last business day of each month or at the end of each 1-, 3- or 6-month interest period, as applicable.
The Amended Credit Facility is unsecured. Upon the occurrence of certain triggers set forth in the Amended Credit Facility, Smith Douglas Homes Corp. may be required to provide a guarantee of the obligations of Smith Douglas Holdings LLC and the other borrowers under the Amended Credit Facility.
The Amended Credit Facility contains certain financial covenants, among others, including requirements to maintain (i) a minimum tangible net worth equal to the sum of (a) $130.0 million, (b) 32.5% of positive pre-tax income earned in any fiscal quarter after June 30, 2023, (c) 75% of the equity proceeds of Smith Douglas Homes Corp. and its subsidiaries from the IPO and (d) 50% of new equity proceeds of Smith Douglas Homes Corp. and its subsidiaries after the IPO, (ii) a maximum leverage ratio of 60%, (iii) a minimum ratio of EBITDA to interest incurred of 2.00 to 1.00, and (iv) a minimum liquidity requirement of $15.0 million. The Amended Credit Facility also contains various covenants that, among other restrictions, limit the ability of Smith Douglas Homes LLC and the other borrowers to incur additional debt and to make certain investments and distributions. Additionally, the Amended Credit Facility contains certain covenants that restrict certain activities of Smith Douglas Homes Corp. The Amended Credit Facility also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations. If an event of default occurs and is continuing, the borrowers may be required immediately to repay all amounts outstanding under the Amended Credit Facility. As of September 30, 2024, we were in compliance with all covenants related to the Amended Credit Facility.
As of September 30, 2024, there were no outstanding borrowings or letters of credit under the Amended Credit Facility.
The foregoing description of the Amended Credit Facility is qualified in its entirety by reference to the Amended Credit Facility, a copy of which is filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.
We are a holding company and have no material assets other than our ownership of LLC Interests. We have no independent means of generating revenue. The Smith Douglas LLC Agreement provides for the payment of certain distributions to the Continuing Equity Owners and to us in amounts sufficient to cover the income taxes imposed on such members with respect to the allocation of taxable income from Smith Douglas Holdings LLC as well as to cover our obligations under the Tax Receivable Agreement and other administrative expenses.
Regarding the ability of Smith Douglas Holdings LLC to make distributions to us, the terms of their financing arrangements (including the Amended Credit Facility) contain covenants that may restrict Smith Douglas Holdings LLC or its subsidiaries from paying such distributions, subject to certain exceptions. Further, Smith Douglas Holdings LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Smith Douglas Holdings LLC (with certain exceptions), as applicable, exceed the fair value of its assets.
In addition, under the Tax Receivable Agreement, we are required to make cash payments to the Continuing Equity Owners equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (i) Basis Adjustments; (ii) Section 704(c) Allocations; and (iii) certain tax benefits (such as interest deductions) arising from payments made under the Tax Receivable Agreement. We expect the amount of the cash payments that we will be required to make under the Tax Receivable Agreement will be significant. The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing Equity Owners, the amount of gain recognized by the Continuing Equity Owners, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing Equity Owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us.
Additionally, in the event we declare any cash dividends, we intend to cause Smith Douglas Holdings LLC to make distributions to us in amounts sufficient to fund such cash dividends declared by us to our stockholders. Deterioration in the financial condition, earnings, or cash flow of Smith Douglas Holdings LLC for any reason could limit or impair their ability to pay such distributions.
If we do not have sufficient funds to pay taxes or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent we are unable to make payments under the Tax Receivable Agreement for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement. In addition, if Smith Douglas Holdings LLC does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired.
See Part I—Item 1A. Risk Factors—Risks Related to our Organizational Structure and Part III, Item 13. Certain Relationships and Related Transactions,and Director Independence of our Annual Report.
Cash flows from operating, investing, and financing activities – comparison for the nine months ended September 30, 2024 and 2023
The following table summarizes our cash flows for the periods presented (in thousands):
Nine months ended September 30,
2024
2023
Net cash provided by operating activities
$
13,655
$
54,958
Net cash used in investing activities
(3,780)
(75,631)
Net cash (used in) provided by financing activities
(5,936)
1,512
Net increase (decrease) in cash and cash equivalents
We generated approximately $13.7 million and$55.0 million in net cash from operating activities for the nine months ended September 30, 2024 and 2023, respectively. Operating cash flows for the nine months ended September 30, 2024 benefited from cash generated by net income of $83.0 million, non-cash operating expenses of $7.9 million, and a $6.2 million increase in accounts payable, which were partially offset by a $61.5 million increase in real estate inventory and $23.1 million increase in deposits on real estate under option or contract. Operating cash flows for the nine months ended September 30, 2023 benefited from cash generated by net income of $93.5 million and non-cash operating expenses of $2.8 million, which were primarily offset by a $34.3 million increase in real estate inventory and $6.5 million increase in deposits on real estate under option or contract.
Investing activities
We used approximately $3.8 million and $75.6 million in net cash in investing activities for the nine months ended September 30, 2024 and 2023, respectively. The net cash used in investing activities during the nine months ended September 30, 2024 was primarily due to purchases of property and equipment and investments in unconsolidated entities. The net cash used in investing activities during the nine months ended September 30, 2023 was primarily due to $74.9 million used to fund the Devon Street Homes Acquisition.
Financing activities
Net cash (used in) provided by financing activities was approximately $(5.9) million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively. The $7.4 million increase in cash used in financing activities was primarily attributable to net proceeds from the IPO and Reorganization Transactions of $115.7 million and a $30.9 million decrease in distributions to members of Smith Douglas Holdings LLC, partially offset by a $127.0 million increase in net repayments under revolving credit facility and a $23.3 million increase in net cash used in in real estate not owned transactions.
Material Cash Commitments
There have been no material changes to the material cash commitments described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report.
Off-Balance Sheet Arrangements
While using land bankers and third-party developers as part of our land-light operating strategy comes at an additional cost, we believe our lot acquisition strategy reduces our operating and financial risk relative to other homebuilders that own and develop a higher percentage of their land supply. As of September 30, 2024, we had 611 owned unstarted lots in real estate inventory on our balance sheet which represented only 3.4% of our total controlled lot supply.
Under the umbrella of our land-light strategy, we generally seek to avoid engaging in land development. Where possible, we prefer to work with third-party developers that will sell us finished lots under lot-option contracts. In situations where we cannot find a developer partner, we will work with third-party land bankers. Under these land bank arrangements, we typically assign the land or lots we have under contract to the land banker. The land banker will acquire the land or lots directly, and if land development is necessary, we will simultaneously enter into a development agreement to complete the lots for the land banker. Additionally, we will enter a lot-option contract to acquire the finished lots on a takedown to match our projected sales absorption and starts pace. Typically, we are required to put up a deposit ranging between 5-20% on our lot-option contracts.
Our asset-light and capital efficient lot acquisition strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled by these option contracts for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner. We do not have any financial guarantees and we typically do not guarantee lot purchases on a specific performance basis under these agreements. In certain circumstances, we may have a completion obligation under development agreements with land bankers where we may be at-risk for certain cost overruns.
As of September 30, 2024, we had $73.9 million of non-refundable cash deposits under land and lot-option contracts pertaining to 9,572 lots with a remaining aggregate purchase price of approximately $612.8 million.
Surety Bonds and Letters of Credit
From time to time, we may enter into surety bond and letter of credit arrangements with local municipalities, government agencies and developers. These arrangements relate to certain performance or maintenance-related obligations. As of September 30, 2024, there were no outstanding letters of credit. Surety bonds do not have stated expiration dates, rather, we are released from the bonds as the contractual performance is completed. These bonds, which totaled $32.7 million and $26.1 million as of September 30, 2024 and December 31, 2023, respectively, are typically outstanding over a period of approximately one to five years depending on the pace of development. If banks were to decline to issue letters of credit or surety companies were to decline to issue surety bonds, our ability to operate could be restricted and could have an adverse effect on our business and results of operations.
Critical Accounting Policies and Estimates
In preparing our financial statements in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and business valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Our significant accounting policies are described in Note 1—Description of the business and summary of significant accounting policies to our accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Some of those significant accounting policies requireus to make difficult, subjective, or complex judgments or estimates. An accounting estimate isconsidered to be critical if it meets both of the following criteria: (i) the estimate requires assumptionsabout matters that are highly uncertain at the time the accounting estimate is made, and (ii) differentestimates reasonably could have been used, or changes in the estimate that are reasonably likely tooccur from period to period may have a material impact on the presentation of our financial condition,changes in financial condition, or results of operations. There have been no material changes to the Company’s critical accounting estimates since our Annual Report, except as described below.
Income Taxes
After consummation of the IPO, Smith Douglas Homes Corp. became subject to U.S. federal, state, and local income taxes with respect to its allocable share of taxable income of Smith Douglas Holdings LLC assessed at the prevailing corporate tax rates. Smith Douglas Holdings LLC operates as a limited liability company and is treated as a partnership for income tax purposes. Accordingly, it incurs no significant liability for federal or state income taxes since the taxable income or loss is passed through to its members.
In calculating the provision for interim income taxes, in accordance with ASC Topic 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.
For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. As of September 30, 2024 and December 31, 2023, there were no known items which would result in a significant accrual for uncertain tax positions.
After the IPO and Reorganization Transactions, we are the sole managing member of Smith Douglas Holdings LLC. The non-controlling interests in the unaudited condensed consolidated statement of income for the three and nine months ended September 30, 2024 represent the portion of earnings attributable to the economic interest in Smith Douglas Holdings LLC held by the Continuing Equity Owners. The non-controlling interests in the unaudited condensed consolidated balance sheet as of September 30, 2024 represent the portion of the net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of September 30, 2024, the non-controlling interests were 82.7%.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 1—Description of the business and summary of significant accounting policies to our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We are choosing to “opt out” of this provision and, as a result, we will adopt new or revised accounting standards upon or prior to required public company adoption dates. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our systems of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act, (iii) comply with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor’s report on the financial statements, and (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates and inflation. These market risks arise in the normal course of business. During the three months ended September 30, 2024, there have been no material changes to the information included under Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10‑Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to mediation, arbitration, litigation, or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm, and other factors. We do not believe that any existing claims or proceedings will have a material effect on our business, consolidated financial condition or results of operations.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes in the risks affecting the Company since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
None.
Purchases of equity securities by the issuer and affiliated purchasers
Asset Purchase Agreement, dated July 31, 2023, by and among SDH Houston LLC, Devon Street Homes, L.P., Devon Street Homes G.P., L.L.C., and John Stephen Ray, The BRR 2022 Trust U/T/A dated April 20, 2022, The CAR 2022 Trust U/T/A dated April 20, 2022 and The TTR 2022 Trust U/T/A dated April 20, 2022
†Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item (601)(b)(10). The Registrant undertakes to furnish supplemental copies including the omitted portions upon request by the SEC.
^Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Smith Douglas Homes Corp.
Date: November 12, 2024
By:
/s/ Gregory S. Bennett
Gregory S. Bennett
President, Chief Executive Officer, Vice Chairman, and Director